Woolworths still keen to strike Warehouse deal

Woolworths
hasn’t given up hope of buying New Zealand’s largest discount retailer,
The Warehouse Group
, even though four years have elapsed since it acquired a 10 per cent stake.

Chief executive
Michael Luscombe
says Woolworths is in regular discussions with Warehouse’s 52 per cent shareholder
Stephen Tindall
, and hopes to eventually strike a deal.

“We continue to have constructive discussions with the major shareholders and I’d hope in time we can find a way for Stephen Tindall to be comfortable with a change in ownership," Mr Luscombe told The Australian Financial Review. “You have to remember this was a business that Stephen created and he’s still the majority shareholder. He’d need to be really comfortable that whoever takes control of The Warehouse will respect what he’s built and its special place in the New Zealand community."

Woolworths was considering a $NZ7.15-a-share, or $NZ2.2 billion ($1.97 billion) offer for The Warehouse three years ago after buying a 10 per cent stake for $NZ200 million in 2006.

But New Zealand’s Commerce Commission refused to grant clearance for a bid on the grounds an acquisition would substantially lessen competition. Warehouse shares are now trading at almost half their 2006 value and Mr Tindall is unlikely to sell until the price improves.

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Warehouse shares fell 5¢ to $NZ3.52 yesterday after the retailer reported a fall in third-quarter sales and reaffirmed its guidance for a third year of flat profits.

Sales for the three months ended May 2 fell 1.9 per cent to $NZ376 million and sales for the year to date were down 0.9 per cent to $NZ1.29 billion. Woolworths is New Zealand’s second-largest grocery retailer and is keen to buy Warehouse to replicate its Big W chain.

Woolworths took a $NZ86.4 million impairment charge against its Warehouse stake last year but plans to reverse the charge and take the difference in value through reserves this year, in line with new NZ accounting rules.

Mr Luscombe said The Warehouse was one of several major acquisition opportunities that Woolworths had missed in the past few years.

Woolworths tried to buy Kmart, Target or Officeworks from Coles in 2007 but was stymied by the Australian Competition and Consumer Commission. Woolworths is also believed to have held talks to buy JB Hi-Fi and Mitre 10 in 2008. It has since bought hardware wholesaler Danks and plans to open a chain of 150 big-box hardware stores in a joint venture with US retailer Lowe’s.

The missed opportunities have muted Woolworths’ sales growth, but have not dampened its appetite to pursue growth through acquisitions, locally or abroad.

“If the right proposition came up then we’d certainly entertain it, but it has to be the right acquisition.

“We’re about long-term sustainable growth so taking big risks is not part of our DNA," Mr Luscombe said. “The further away you get from home the risk actually goes up, so we just have to take that into account when considering any acquisition."